Algorand secures its network without asking holders to lock anything up

Most proof-of-stake blockchains demand that validators lock up their tokens as collateral. @Algorand takes a different approach, one where the native token never leaves the holder's wallet.

How the selection process works

Unlike other proof-of-stake approaches where a user must stake, essentially lock up, their tokens, on Algorand the user maintains control of their Algo at all times, since the tokens remain in the user's wallet whilst securing the network as part of consensus. The mechanism behind this is a cryptographic lottery run on every block.

A new block proposer and a new validator committee, both randomly selected in a private and non-interactive method out of all online users with probability based on the users' stake, are elected for each block. Because membership selection is non-interactive, an adversary does not know which user to target until that user has finished their work. This privacy is a deliberate security feature: the use of VRF prevents an adversary from predicting the set of members chosen for the next step of committing a block.

The network can tolerate malicious actors and avoid forks and double-spending as long as a supermajority of the stake, over two-thirds, is held by honest participants. Rather than leaning on financial penalties to enforce good behaviour, Algorand is designed to guarantee security through advanced cryptography and does not rely on economic disincentives to secure the network. Staked $ALGO is not subject to slashing. Instead, ineffective nodes are algorithmically removed from consensus and simply forgo rewards.

Rewards, thresholds, and options for smaller holders

There is a minimum of 30,000 $ALGO for a participating account to be eligible for staking rewards. This was determined via community governance vote in Governance Period 10 (GP10). The threshold encourages would-be node runners to bring online enough stake to propose blocks regularly without encouraging a large number of nodes with small stake, which could have performance implications.

Rewards begin at 10 ALGO per block and will decay by 1% every millionth block. Validators also receive 50% of the transaction fees of the blocks they successfully propose.

For users with fewer tokens, several other options exist to participate in consensus and earn rewards. Liquid staking services are available through platforms like Tinyman, Folks Finance, and CompX, providing a flexible alternative to traditional staking. Liquid staking applications allow users to stake their Algo while maintaining liquidity. The typical process asks users to deposit Algo and mint new tokens that represent the ownership and value of the staked Algo, which can then be used across the DeFi ecosystem.

Sources:
Algorand: Pure Proof-of-Stake consensus mechanism
Algorand: Staking Rewards
Algorand Developer Portal: Algorand Consensus